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Economic Model IDs Pandemic Business Opening Risks

Shop open sign

(StockSnap, Pixabay)

12 June 2020. As communities try to manage their economies during the Covid-19 pandemic, three economists offer a model to help decide which businesses to open after shutting down. A team from Massachusetts Institute of Technology describes its model in the 10 June issue of Proceedings of the National Academy of Sciences.

Seth Benzell, Christos Nicolaides, and Avinash Collis from MIT’s Initiative on the Digital Economy are seeking a more systematic approach for decisions by authorities on businesses and institutions to open after shutting down for weeks and months. These difficult decisions have literally life-and-death implications, with authorities having few, if any precedents to guide them.

“Policymakers have not been making clear explanations about how they are coming to their decisions,” says Collis in an MIT statement. “That’s why we wanted to provide a more data-driven policy guide.”

The MIT researchers designed an economic model that quantifies the risk and reward trade-offs, and measures key factors going into these decisions: risk of Covid-19 transmission, value to consumers, and economic outputs and costs. The team determined risks of disease transmission from Safegraph, a service that tracks foot traffic from 47 million smartphones, visiting some six million locations.

The researchers analyzed these data from January 2019 through March 2020, focusing on 26 types of businesses and institutions. The authors then weighted the foot traffic data by population from Census tracts, and created nine levels of danger based on crowding that includes keeping a safe distance, amount of time in a location, and percentage of older visitors, 65 and up also from Census tract data.

For economic outputs and costs, the team amassed data on annual payroll, receipts, and employment in the 26 categories of businesses and institutions, covering 1.4 million companies in some two million locations. For measures of consumer value, the researchers conducted a survey of 1,100 residents of the U.S. in mid-April. Survey participants were asked to chose between pairs of businesses they prefer to be open.

The researchers’ model shows banks appear as the top performing type of business, since they perform a key business function, ranking first in economic importance, and are not often crowded, thus ranking 14th of the 26 categories in risk. “Banks have an outsize economic impact,” says Benzell, “and tend to be bigger spaces that people visit only once in a while.”

Businesses ranking low in the model either have less economic value or are more likely to be crowded, and thus more risky to visitors. These establishments include liquor stores, tobacco stores, sporting goods, cafes, juice bars, dessert parlors, and gyms. In fact, cafes, juice bars, and dessert parlors ranked third-highest in disease risk, while gyms ranked fifth in risk.

Colleges and universities scored relatively high in the model for reopening, ranking eighth in economic importance and 17th in disease risk. The authors acknowledge that these rankings are likely based on the institutions’ educational and research activities, and not typical dormitory or campus social life. The authors also note the model does not take regional or local factors into account, which decision makers would need to apply on their own.

While much of the current public interest is on establishments to reopen after closing down earlier in the year, the authors point out the model can also help with decisions on businesses to close again, if necessary. “This is not only about which locations should reopen first,” says Nicolaides. “You can also look at it from the perspective of which locations should close first, in another future wave of Covid-19.”

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